MODULE-IV

SWOT ANALYSIS

Analyzing Company’s Resources & Competitive Position

The object of any industry is to develop the competitive advantage over similar
industries in order to sustain growth and profitability. For this, a constant assessment of
Strength and Weaknesses in every area of management is to be done on a continuous
basis to retain it’s stability & strengths. The external factors are guiding the internal
actions to take advantage of the situation. It is the internal strength is the real strength of
the Management to combat with external changes.

Internal Analysis gives the manager the information they need to choose the strategies
and business model that will enable their Company to attain a sustained competitive
advantage. Internal analysis is a three-step process. (1) The manager must understand the
process by which companies create value for customers and profit for themselves, and
they need to understand the role of resource, capabilities and distinctive competencies in
this process. (2) Secondly, the Managers need to understand how important superior
efficiency, innovation, quality and responsiveness to customers are in creating value and
generating high profitability. (3) Thirdly, the Managers must be able to analyze the
sources of their company’s competitive advantage to identify what is driving the
profitability of their enterprise and where opportunities for improvement might lie. In
other words, they must be able to identify how the strengths of the enterprise boost its
profitability and how any weakness leader to lower profitability.

Three more critical issues in internal analysis are addressed (1) what factors influence
the durability of competitive advantage? (2) Why do successful companies are often
lose their competitive advantage? (3) How can companies avoid competitive failure and
sustain their competitive advantage over time?

Internal Appraisal

For tapping the opportunities present in the environment, the firm must have an
understanding of its strengths and weaknesses. The firm accomplishes this requirement
through a methodical internal appraisal. It cannot afford to go by some untested
assumptions in this regard, which it might have developed overtime. Only properly
assessed facts about its strengths and weaknesses can be of help. Internal appraisal
provides such facts to the firm. A systematic internal appraisal helps as,
1. to know where it stands in terms of capabilities and strengths and weaknesses.
2. to select opportunities to be tapped in line with its compatibility.
3. to mach its objective itself in line with its capability.
4. to assess the capability gap and take steps for elevating the capability in line with
the growth objective.
5. to select the specific lines in which it can grow, using its potential.
Appraisal of the Status/Health of the Business of the firm

1
A close scrutiny of the health and potential of the various ongoing businesses of the
firm is a vital part of internal appraisal. The firm has to sort-out issues such as What
does the basket of business look like? Does the firm have a healthy portfolio overall?
Is it balanced well? Is there enough business with good growth and profit potential?
In what kind of industries are the businesses placed? Are they growth industries,
mature industries emerging industries or declining ones? As what rates do they grow
now? Analysis on such lines becomes essential because the final strategy choice with
regard to changes, additions and deletions to the firm’s business portfolios heavily
depend on these findings.

Concept of Strategic Business Units (SBU)

In modern times, most corporations organize their businesses into appropriate SBUs
and their internal appraisal they carry out an assessment of their SBUS. The student
must have a good grasp of this concept since it is a vital idea in Strategic Planning
and Strategic Management endeavor.

The concept is relevant to multi-product, multi-business enterprises. It is impractical

for an enterprise with a multitude of businesses to provide separate strategic planning
treatment to each one of its products/businesses, it has to necessarily group the
products/businesses into a manageable number of strategically related business units
and then take them up for strategic planning. The question is, what is the best way of
grouping the products/businesses of each large enterprises.

Analytical Models used in Appraising Business Portfolios

1. Boston Consulting Group’s Growth-Share Matrix (BCG) Model

In a multi-business firm, some businesses may be bring in enormous profits while

some others may be making heavy losses, certain businesses may be having a
high market share and certain others, a low share. And, in respect of some of the
businesses, the industry as a whole may be growing at an attractive rate while in
the othrs, the growth rate of the industry as a whole may be very poor. The firm
can start its strategic management task only after looking at health/performances
of each of its businesses in depth. It has to evaluate its own performance in the
businesses as well as the performance of the concerned industry; as a whole. It
has to place itself vis-à-vis the industry; and assess its position relative to the
competitors. The Boston Consulting Group’s (BCG) Growth-Share Matrix deals
with the process of evaluation of the industry growth and relative position of the
firm in the industry. The Matrix classifies the businesses of a firm into four
distinct categories on the basis of the above evaluations.

a). Stars - Are net users of resources. A star needs a good deal of investment

2
 support as it operate in a high-growth market. It normally does not bring in
immediate profits but holds out great potential for the future.
b) Question Marks – Are too are net users of resources. But unlike the Stars,
their future is uncertain. In addition, they are in a high-risk category while
Stars are in the medium-risk category.
c) Cash Cows - Are net generators of resources. A Cash Cow brings a lot of
cash to the company. It does not need heavy investments, being in a low-
growth market, expansion possibility and hence investment needs of a Cash
Cow would be minimal. It also brings in higher profits.
d) Dogs - Being businesses with weak market shares in low-growth markets
are generally a drag on the company and its resources. They are actually
cash traps for the company.

The strategy - the firm may decide to support the Stars by committing heavy
resources, it may decide to totally milch one of the Cash Cows, it may decide to
provide one of it’s Question Marks a very special treatment, with the mission of
turning it into a Star and it may decide to straightway dispose of some of its Dogs.

2. General Electric’s Multisector Portfolio Planning Matrix (GE Model)

This Matrix holds that a company can appropriately rate its different business for the
purpose of strategic planning, on the basis of two main parameters.

a) Industry Attractiveness
b) Company’s Business Strength.

How attractive is the industry, How strong is the firm in the industry. It is the desire of
every firm to stay in the most attractive industries and excel through its distinctive
strengths. When the industry concerned is highly attractive and the company has the best
of strengths for excelling in that industry, the business is rated as the most important one
to the company from the strategic planning point of view. At the other end of the scale,
where the business belongs to the least attractive industry and the company’s strengths
for excelling in that industry are also very low, the business is rated at the least important
one. The other businesses will occupy a position somewhere between the two extremes.
This is the basic approach.

Industry Attractiveness factors - industry potential, current size, rate of growth, structure
and profitability .
Business Strength – factors – market share, growth rate, differentiation strength, brand
image, corporate image etc.
All factors chosen should be comparable to other industries. Each factor also has to be
given a weight age consistent with the general practice.

The Matrix is divided into 9 cells. The high, low and medium positions assigned to the
two parameters give rise to these 9 cells. The matrix has 3 zones, one at the upper left,
one at lower right and one central-diagonal. The upper left zone represents businesses

3
strong in overall attractiveness. The lower right zone represents businesses that are week
in overall attractiveness and the central diagonal zone represents businesses that are
medium in overall set its objectives Using the ratings in the matrix, the firm can
appropriately set its objectives and strategies in respect of each of its businesses
businesses Once the exercise acquires the required clarity, it can decide the businesses it
should invest/develop, the business in which it should pursue selectivity/earnings and the
ones it should harvest/divest.

SWOT ANALYSIS

Strength, weakness, opportunity and threat – analysis should be undertaken in an

integrated way by combining organizational capability profile (OCP) and Environmental
Threat and Opportunity Profile (ETOP). The basic objective of SWOT analysis is to
provide a framework to reflect o the organizational capability to avail opportunities or to
overcome threats presented by the environment. Infract, the dimensions of
organizational capabilities have relevance in so far as they related to the environmental
conditions. Hence organizational analysis and environment analysis should be
interlinked SWOT conditions SWOT analysis presents the information about external
and internal environment to structured form whereby key external opportunities and
threats can be compared systematically with internal capabilities and weaknesses. This
the organization’s external and internal situations can be matched so as to form distinct
patters and strategy can be chosen on the basis of three patterns. such as,

a) High opportunities and high strengths. –Supports an aggressive strategy

b) High opportunities and low strengths. – Turnaround oriented strategy
c) High threats and high strengths. – Supports Diversification strategy
d) High threats and low strengths. – Supports a Defensive strategy.

Strengths - is a resource advantage relative to competitors and the needs of the markets
a firm serves or expects to serve. It is a distinctive competence when it gives the firm a
comparative advantage in the market place. Strengths rise from the resources and
competencies available to the firm.

Weakness – is a limitation or deficiency in one or more resources or competencies

relative to competitors that impedes a firm’s effective performance.

Opportunities - as major favorable situation in a firm’s environment. Key trends are one
source of opportunities. Identification of a previously overlooked market segment,
changes in competitive or regulatory circumstances, technological changes and improved
buyer or supplier relationship could represent opportunities for the firm.

Threats - is a major unfavorable situation in a firm’s environment. Threats are key

impediments to the firm’s current or desired position. The entrance of new competitors,
slow market growth, increased bargaining power of key buyers or suppliers, technogical
changes and new or revised regulations could represent threats to a firm’s success.
Value Chain Analysis

4
Michel Porter’s - A useful tool for analyzing a firm’s strengths and weaknesses and
understanding how they might translate into competitive advantage or disadvantage. The
value chain describes the activities that comprise the economic performance and
capabilities of the firm. The value chain describes the activities that comprise the
economic performance and capabilities of the firm. Specifically, the value chain
identifies primary (i.e. those directly related to the firm’s product or service ) and support
(i.e. those that assist the primary activities) activities that create value for customers. By
considering all of the firm’s processes from the procurement of raw materials to the
delivery of a final product and/or service, strategic managers can identify discrete
activities performed along the way that may add exceptional value to the end product or
detract from it.

Five primary activities are,

a) In bound logistics (bringing materials into the business)

b) Operations (product design, manufacturing, testing etc)
c) Outbound logistics (sending the products out)
d) Marketing and sales
e) Services

Four Support activities are,

a) Firm’s infrastructure.
b) Human resources
c) Technology development
d) Procurement

The firm examines the costs and performance in its value chain in the total value chain as
well as in each link in the chain. It estimates the cost and performance of the value chain
of competitors – of the total value chain as well as of each link in the chain. This would
be the starting point for achieving a position of superiority/distinction, relative to the
competitors.

By this, one can assess the strengths and weaknesses of the competitors. It also gets
insights into the strategy followed by the competitor. These revelations help the firm
improve its assumptions about competitors.

Five step approach to competitor analysis

1. Identify the competitors

2. Identify what they want
3. Identify their strategy
4. Identify their strengths & weaknesses/relative capabilities
5. Predict what they will do.
Bench Marking & Ethical Conduct

5
The competitive benchmarking is the process of measuring a firm’s performance against
that of the top performers, usually in the same industry.
A major focus in determining a firm’s resources and competencies is comparison with
existing (and potential) competitors. Firms in the same industry often have different
marketing skills, financial resources operating facilities and locations, technical know
how, brand images, level of integration, managerial talent and so on. These different
internal resources can become relative strengths/weaknesses depending on the strategy

Best practices – a processes or activities that have been successful in other firms. It is an
attempt to adopt best practices from similar or other firms because of proven success
towards profitability and productivity.

Ethical Conduct

Social responsibility refers to the expectations that business firms should serve both
society and financial interests of the shareholders. A firm’s stance on social
responsibility can be a critical factor in making strategic decisions. Decisions cannot be
aimed only at profit or other narrow objects. They are to be based on Ethical /Moral
factors with a welfare view of all sections of the society.

From an economic perspective, business has always been expected to vide employment
for individuals and to meet consumer needs. Society also expects firms to help reserve
the environment, to sell safe products to treat their employees equitably and to be
truthful with their customers in contributing to education, public health, public hygiene
etc.

Managerial Ethics – An individual’s responsibility to make business decisions that are

legal, honest, moral and fair. Managers involving in bribe keeping aside the Co’s
interest and employee’s interest, suppression of facts, not transparent in their dealings
etc, joining with competitor and acts of a traitor all causes serious damage to the
Organization. All acts towards Self interest is unethical..